IE7/IE8 depend on XP/Vista specific system DLL files & registry entries. IE7 & higher (even when forced installed on 98se PC) will permanently cripple your 98se computer and you'll have to reinstall 98se from scratch to undo the mess. IE7 on Win9x, NOT worth it!
Never say never.
In such cases it reminds me of WIne project. I guess KernelEx could also (as the Wine) use separate plain text file for the foreign registry entries (by blacklisting them or whitelisting W98 branches). And stubs for specific DLLs could also be developed (if real files on disk are needed). But at first you should make IE7/IE8 running under Wine. Then the process under KernelEx would be lot easier. IMHO
Sorry for a dev-like message when I am not one.